Initial Public Offering (IPO) opens for new Satrix Quality South Africa ETF

Helena Conradie, CEO of Satrix.

Satrix is listing a sixth ETF this year to complement its ETF product suite. The IPO for the Satrix Quality South Africa ETF opens on Friday, 1 September. The year 2017 has seen the index-tracking pioneer expand its ETF range, starting in February with the Property and ILBI ETFs, followed by three global ETF offerings in July. The new quality ETF forms part of the Satrix smart beta offering. “We want to provide investors with a complete set of ETF building blocks so they are able to construct a diversified portfolio,” says CEO Helena Conradie.

Exposure to quality companies

The Satrix Quality South Africa ETF tracks the S&P Quality South Africa index, which invests in high quality stocks in the South African market, ranked by a quality score. The quality score is calculated based on the company’s return on equity, accruals ratio and financial leverage ratio. The index is rebalanced semi-annually and the weight of each constituent is capped at 10%. The index dividend yield is 3.9%.

Jason Swartz, Head of Portfolio Solutions at Satrix notes, “Some indicators of strong quality characteristics of companies are 1) good management, 2) strong balance sheets, 3) high and sustainable levels of profitability and 4) a high level of earnings quality. Good management, while tremendously important to a company’s ability to grow and be successful in its industry, is a difficult criteria to assess given the inherent subjectivity of the evaluation. On the other hand, the other indicators are more easily measured.”

The S&P Quality South Africa index currently has 24 constituents, of which the Top 10 are shown below:

Understanding the role of quality in your portfolio

Compounding returns is essential to achieving long-term outperformance and, to this end, downside protection is important. How well an equity portfolio performs during down markets (relative to broad benchmarks) is very often a determining factor in whether the portfolio outperforms the benchmark over the long run. By investing in quality companies which tend to be more sustainable in difficult markets, the focus is on downside protection, which increases the probability of superior long-term risk-adjusted returns.

The graph below shows how the S&P Quality South Africa index performed against broad market indices over time:

Benefits of taking up the IPO

Investors have the opportunity to be the first to invest in the new ETF in the initial public offering (IPO), which opens on Friday, 1 September. Participating in the IPO means you pay no brokerage fees on the initial investment and you’ll participate in the performance of the ETF from the first day it trades on the Johannesburg Stock Exchange.

Investors can access the IPO via the SatrixNOW.co.za platform, where there is no minimum investment amount and no annual platform fee. It is also available on other transacting platforms like the Satrix Investment Plan, etfSA, EasyEquities, iTransact and Standard Bank online, to name a few. If you already have a personal stockbroking account, simply contact your broker to invest.

The anticipated date of listing on the JSE is Tuesday, 26 September 2017.

Visit www.satrix.co.za to read more about the new ETF and the IPO process.